Mid- and small-caps may gain from broader recovery but won't come cheap

Take limited exposure to these stocks and opt for the fund route if you aren't adept at direct investing

With the Sensex touching the 50,000 mark recently, there is fear among market participants that equities may have become overpriced. Nonetheless, one category that is being pitched actively to investors is mid- and small-cap funds. The rationale being advanced is that earnings of mid- and small caps tend to rise sharply during a broad-based economic recovery. Investors need to understand the opportunities and risks in these segments fully before entering them.   

Positive drivers 

Many listed mid- and small-cap companies are present in segments that have a large unorganised component. “Whenever a disruption occurs, organised-sector players benefit at the expense of the